Monthly Archives: December 2010

Your Startups Pre-Launch Checklist: Legal Entity (Part 10 of 14)

Legal Entity from the Startup Garage

Your Startups Pre-Launch Checklist: Legal Entity (Part 10 of 14)

What Legal Entity Fits Your Startup?

This blog post has been prepared by The Startup Garage for informational purposes only and does not constitute advertising, a solicitation, or legal advice. The information contained in this blog post is provided only as general information which may or may not reflect the most current legal developments; accordingly, information in this blog post is not promised or guaranteed to be correct or complete. The Startup Garage expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this blog post.

Before your business can get started, you as an entrepreneur have to pick your startup’s legal entity. There are multiple forms of business structures that you should consider when creating your startup. They are:

  • Sole Proprietorship
  • General Partnership
  • Limited Partnership
  • Corporation
  • Limited Liability Company (LLC)

When considering what legal business type to choose four things to consider are:

  • The amount of control you want in your company
  • The amount of liability you are responsible for
  • How you will file your taxes
  • Administrative requirements

What is a Sole Proprietorship?

A sole proprietorship is one of the simplest and least regulated legal entities. In a sole proprietorship you, the entrepreneur, have total control of the business. The only problem with that is that with great control comes great responsibility. The sole proprietor is responsible and as a result all of his or her business and personal assets can be at risk.

When tax day rolls around, the sole proprietor files his or her business taxes with personal income tax forms.The entrepreneur may want to change the type of business entity as the startup grows because it will significantly reduce the amount of taxes he or she pays. Other than that, there are limited administrative requirements. Also, you still need to get your fictitious business name and local business licenses!

Partnerships: What is the difference between a General and Limited Partnership?

The difference between a general and limited partnership is based on liability. General partners are each liable for all debts while limited partners are only responsible for the amount of money the put into the startup. The amount of control each partner has in the company is determined by a Partnership Agreement. Partnerships are known as a pass-through entity, meaning that each partners profits are directly taxed. There are some administrative licenses that need to be obtained, but there are limited record-keeping or tax filing requirements.

What is a Corporation?

A corporation is a legal entity that is under the authority of state law and is separated from the people who own, manage and control the business. The shareholders buy stock in the company and elect the companys directors who govern general affairs and elect officers to run the day to day operations. One of the reasons to incorporate is to protect yourself from debts. Debts cannot be collected from the officers, directors or shareholders of the corporation, but shareholders can be asked to guarantee the payments of the corporation.

The main drawback of incorporating your startup is the amount of tax preparation and administrative work you need to do. For-profit C corporations are double taxed, once on the income earned by the company and once on the shareholders dividends. The startup can become an S corporation and the corporation is not taxed, but the income and losses are passed through to the shareholders. To be eligible to be an S corporation, a startup must:

  • Not have more than 100 shareholders
  • Shareholders cannot be non-resident aliens
  • Only have one class of stock

To learn more, you should visit the IRSs website. We have found that to incorporate a business attorneys charge $499 – $1,500 and each state charges a fee of $100 on average.

What is an LLC?

A LLC is a cross between a corporation and a partnership. It is owned by one or more interest holders, or members, who have management rights. Members can also assign certain managers to run the company who are not members and are only responsible for the amount of money they put in. LLC’s are taxed just like partnerships are, so earnings are given to owners and they are then taxed at their personal taxed rates.

Make sure you have an attorney advise you on what type of legal entity is best for your startup. This is a tough process for entrepreneurs to to by themselves, so we recommend that you get some advice from a legal expert.

That’s it for the legal portion of the Your Startup’s Pre-Launch Checklist series! Over the next few posts we will go over some of the marketing tools that you should have in place before your startup opens its doors. Tune in Thursday when The Startup Garage explains the importance of creating an all-star logo.

 

Whether you have a question about your legal entity or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Your Startups Pre-Launch Checklist: Trademarks, Patents, and Copyrights (Part 9 of 14)

Trademark, Patent, and Copyrights from the Startup Garage

Your Startups Pre-Launch Checklist: Trademarks, Patents, and Copyrights (Part 9 of 14)

This blog post has been prepared by The Startup Garage for informational purposes only and does not constitute advertising, a solicitation, or legal advice. The information contained in this blog post is provided only as general information which may or may not reflect the most current legal developments; accordingly, information in this blog post is not promised or guaranteed to be correct or complete. The Startup Garage expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this blog post.

One of the major upsides of being an entrepreneur is being able to come up with a great idea and share it with the world. In order to incentivize invention, the U.S. government created the ability to protect intellectual property (idea, saying, logo, etc.) so one could profit off it. That is why there are trademarks, patents and copyrights to protect the intellectual property of entrepreneurs and inventors.

What is a Trademark?

A trademark protects a word, phrase, symbol, design or some combination of all of these. Trademarks are most often used to protect your company logos or your products name. You do not need a lawyer to get a trademark, but it definitely makes the process easier. If no one has a trademark that is similar to yours, then you can start the process which costs anywhere from $275 to $325. An application takes about six months to be approved, so we recommend you get a lawyer to advise you so that this process is completed correctly the first time.

What is a Patent?

While a trademark protects a logo or name, a patent protects an invention or a new process. So if you have a new product that you want to patent, you should first check the U.S. Patent Office to make sure there is not anything similar already out there. After that, you need to determine what type of patent it is and what type of application to fill out. In most cases getting a patent attorney is extremely important since the application process is pretty complex. Typically, a patent attorney can run you anywhere from $4,000 – $10,000 per patent, but this may be a small price in order to get the best protection for your idea.

What is a Copyright?

A copyright protects an original expression, for example a piece of music or literature. Most entrepreneurs file for copyrights because they want details of their ideas on public record so they can protect themselves in a lawsuit. You can apply for a copyright for a $35 fee online and a $55 fee in person.

Trademarks, patents and copyrights are extremely important for entrepreneurs in order to protect their ideas. If you need more information you should visit US Patent Office and US Copyright Office.

Sign up for The Startup Garage’s RSS Feed now to get news and advice for your new startup! Come back on Thursday when we’ll go over the different business legal entities and which is best suited for your company!

 

Whether you have a question about filing business patents or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Your Startups Pre-Launch Checklist: Bank Accounts (Part 8 of 14)

Bank Accounts from the Startup Garage

Your Startups Pre-Launch Checklist: Bank Accounts (Part 8 of 14)

This blog post has been prepared by The Startup Garage for informational purposes only and does not constitute advertising, a solicitation, or legal advice. The information contained in this blog post is provided only as general information which may or may not reflect the most current legal developments; accordingly, information in this blog post is not promised or guaranteed to be correct or complete. The Startup Garage expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this blog post.

In our last post we discussed the different types of business insurance your startup may need to purchase. Now that you are starting to spend money on your business, its probably a good idea to stop putting your cash under your mattress and open a bank account. When you open a bank account its important that you determine what bank you want to use and to make sure that the bank provides all of the services that your startup needs.

What bank is right for me?

Most banks offer the same services such as online banking, but what is important to keep in mind is the branch and ATM network. If youre the type of entrepreneur that walks from meeting to meeting making regular ATM deposits, you might not want to go with a small credit union with few ATMs. Still, those smaller banks usually have shorter wait times and tend to treat you more as a person than just a person who happens to have an account with them.

More important than the number of ATMs and branches a bank has is the quality of the people who will be taking care of your money. It is important to find a bank and banker that you trust, because it is very likely that you will have questions as time goes on. The last thing you want as a business owner is to not know whats going on with your money, right? So make sure you find a banker who is accessible and attentive, not just someone who wants to win your account. Treat this as a relationship: go out on a few dates and see which one is right for you.

What are my options?

Keep in mind what your average monthly balance will be. Not only will this determine your account type, but it will also decide if you pay any service fees. Some banks also give you great features and benefits if you have a larger than average account balance.

Does my business type play a factor?

In short: yes. Make sure you tell your banker what business type you are as soon as the meeting starts. This will help him or her recognize your account volume and services that you will need.

What steps do I need to take?

  1. Figure out what bank you want to use (its a good idea to set up a few meetings with different banks before you make your decision).
  2. Go to the bank or its website.
  3. Determine what type of account fits your needs.
  4. Fill an application.

Simple, right? For more quality information like this, make sure you sign up for our RSS feed. In our next post we will go over how to protect your business with trademarks, patents, and copyrights.

 

Whether you have a question about Business Bank Accounts or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Your Startups Pre-Launch Checklist: Business Insurance (Part 7 of 14)

Business Insurance from the Startup Garage

Your Startups Pre-Launch Checklist: Business Insurance (Part 7 of 14)

What Type of Insurance is Right for My Company?

This blog post has been prepared by The Startup Garage for informational purposes only and does not constitute advertising, a solicitation, or legal advice. The information contained in this blog post is provided only as general information which may or may not reflect the most current legal developments; accordingly, information in this blog post is not promised or guaranteed to be correct or complete. The Startup Garage expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this blog post.

Many people think of their startup as more of an individual with a mind of its own than a business and just like a person, your new venture is going to need insurance. It cannot be stressed enough how important business insurance is for your new enterprise, especially in a society like ours where people are so quick to take one another to court. There are many different types of insurance, so in this post we will go over the big three:

  • General Liability Insurance
  • Workers Compensation
  • Professional Liability

What is General Liability Insurance?

General liability is often known as a trip and fall policy because it is for when a third party claims someone is injured. In other words, general liability covers you if a customer slips in a puddle in your store or an employee cuts himself on the job site. Any time someone claims your business caused them some sort of bodily harm, general liability insurance will protect you. Most landlords will require that you get $2,000,000 of coverage with an additional $1,000,000 per accident you have. Make sure you get this from your property manager in writing!

What is Workers Compensation?

Workers compensation is another extremely common insurance most businesses have. If an employee gets injured during the course of his or her work day, this will cover the cost of the injuries and lost wages. If you do business in a state that requires workers compensation, dont try to get out of it. The Department of Industrial Relations can shut you down for not having adequate protection and fine you $1,000 per employee.

Costs vary depending on the state and the type of job the worker performs. Employers of high risk jobs will have to put more aside for workers compensation. For example, in California for every $100 an office clerk makes, his or her employer must set aside $1.25 in workers compensation. In Washington on the other hand, every $100 a sawmill worker makes his or her employer must set aside $2.06.

What is Professional Liability Insurance?

The final insurance we will discuss today is professional liability insurance, also known as Errors & Omissions insurance or Malpractice in the medical field. Basically, professional insurance is for those who give provide services or advice to a customer that is potentially harmful. This type of insurance is especially suited for technology professionals, lawyers and business consultants.

One last thing we forgot to mention: make sure you understand all aspects of the insurance you are getting before you sign any papers. A policy may cover only certain aspects, so make sure you know what it covers and what it doesn’t. The role of an insurance agent is to make sure you are getting the right insurance and understand what you are buying, so be sure to ask them any questions you have.

Remember to keep up with this series and all Startup Garage news by signing up for our RSS feed!

Our next post will be on the different banking options that startups have. See you Tuesday!

 

Whether you have a question about Business Insurance or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Your Startups Pre-Launch Checklist: Non Disclosure Agreements (Part 6 of 14)

Non Disclosure Agreement from the Startup Garage

Your Startups Pre-Launch Checklist: Non Disclosure Agreements (Part 6 of 14)

What is a NDA?

This blog post has been prepared by The Startup Garage for informational purposes only and does not constitute advertising, a solicitation, or legal advice. The information contained in this blog post is provided only as general information which may or may not reflect the most current legal developments; accordingly, information in this blog post is not promised or guaranteed to be correct or complete. The Startup Garage expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this blog post.

Sometimes when groups are working together, information is discovered that could be detrimental to the other side if it went public. If you are ever in this kind of situation, a non disclosure agreement (NDA) would come in handy. An NDA is a legal agreement between two or more parties that outlines confidential material or knowledge that the parties want to share with each other, but do not want anyone else to know.

When would I get a Non-Disclosure Agreement?

NDAs are most commonly used when two companies or individuals are going to do business together and need to understand each others operational procedures. As you can see, it would be easy for there to be some mistrust between the two parties since one may think the other would steal an idea or process from another. Non disclosure agreements allow the two parties to be able to trust each other, stating that by law one party can not disclose curtain information about another to anyone.

For entrepreneurs, NDAs are extremely important when approaching investors or people who can help them develop their ideas. If an entrepreneur needs to give vital information, that information can be disclosed to outside companies or competitors. Divulging such information can also prevent a startup from filing a patent and claiming trade secret protection. If you are thinking about asking an investor for an NDA, make sure you dont demand it too early in the investing process. Many VCs and angels dont want to sign NDAs early on because it leaves them open to potential lawsuits, and as a result they may sooner throw away your application that sign the document.

What is in a NDA?

NDAs can be unilateral, where only one side wants to share information with the other, or mutual. In general, non disclosure agreements protect information that is not generally known by the public. Common topics that come up in these documents are:

  • An outline that the parties can agree to
  • What confidential means in this case
  • How long this information must be kept confidential
  • Any restrictions or exclusions

Stop by Thursday when we will go over patents, trademarks andcopyrights. Also, stay in the loop by signing up for our RSS feed! Next we will go over what type of business insurance your startup is going to need.

 

Whether you have a question about Non-Disclosure Agreements or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Your Startups Pre-Launch Checklist: Sellers Permits (Part 5 of 14)

Sellers Permit from the Startup Garage

Your Startups Pre-Launch Checklist: Sellers Permits (Part 5 of 14)

What is a Seller’s Permit?

If your startup is going to be selling or leasing products or selling taxable services, you are going to need a sellers permit. A sellers permit is a basic business requirement that allows your new venture to collect sales tax for the state. As a result, there are different requirements to apply for a sellers permit in every state.

According to most state guidelines, a new company has to get a sellers permit three weeks before the startup opens its doors, so make sure you plan ahead. Also, keep in mind that if you plan on opening multiple locations, you have to obtain a sellers permit for each one.

How to Get a Sellers Permit

As we mentioned before, every state has a different method when it comes to acquiring a sellers permit. For example, entrepreneurs in the state of California can register for a sellers permit in person at any Board of Equalization office. Registration can be usually completed the same day and help in completing the application is available as well. Business owners can also apply for a sellers permit by mail, but this process takes a little longer, so we suggest entrepreneurs take the time to do this in person.

Getting a sellers permit in California is free of charge and the application is only about two pages long. If you would like more information about how to get hold of a sellers permit or any other business document in your area, visit Business.gov.

Next week will discuss how to protect an entrepreneur’s intellectual property. Make sure you sign up for our RSS feed so you can stay informed!

 

Whether you have a question about seller permits or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!